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Passporting, which allows London-based lenders and insurance companies to sell their services anywhere in the single market, is unlikely to continue after the U.K. leaves the 28-nation bloc, Mark Garnier said in an interview. He added that an alternative system that’s been floated, known as equivalence, was probably not going to be "good enough" for banks.
Garnier, who is also government envoy for financial services, instead touted a better version of equivalence that might work well for London-based banks. The drawback is that Britain may have to accept all future EU regulations as they are handed down from Brussels, he said. Resentment toward EU bureaucracy and a backlash against immigration were drivers behind the June referendum.
“If we can create a special hybrid version of that, with a better version of equivalence or a different version of passporting, then that’s what we will try to achieve,” Garnier said by phone. “What we are not trying to do is fit into an existing box. We are trying to create a new model.”
Asked if this meant passporting was likely to end but would hopefully be replaced with something else, he said: "Exactly." [...]
Garnier elaborated on why the system known as equivalence, whereby London-based banks could keep operating in the single market if British and EU financial rules are compatible, “wouldn’t necessarily work.” Many international banks, he said, would regard this equivalence with suspicion because the status can be withdrawn at 30-days notice.
“It is entirely possible that we will just have to adopt the rules of the EU as they come down with regards to financial regulation,” he said. A new arrangement along these lines would depend, he added, on creating “the right dialogue” to craft a system that works for both the U.K. and the EU.